Problem:
The 11/7/2014 nominal interest rate on ten year US government bonds is 2.31% (source: Yahoo Finance). Solve for the inflation rate (rounded to the nearest 10th of a percent) (source: CPI from Bureau of Labor Statistics) if the 10-year real yield is 0.60%. Please make use of the actual instead of approximate formula (you will have to rearrange the formula) for determining the real rate from the nominal rate to calculate the answer.
Required:
If you are an investor in government bonds, you may want to think about whether 0.60% real return is a good deal.
a) -0.60%
b) 0.61%
c) 1.41%
d) 1.70%
e) 2.31%
f) 3.85%
Note: Please show basic calculation